Indie FAs Sue Former RIA Alleging Their Business Was Held for “Ransom”
A pair of independent advisors are suing the RIA they left earlier this year claiming the firm held them “hostage” and tried to “strong-arm” them to stay so it could continue collecting part of their revenue, according to news reports.
Sisters Beth Westburg and Laurie Lipman are suing Good Life Advisors for fraud and breach of contract and further allege the RIA “fraudulently misrepresented” that they would own their clients, ThinkAdvisor writes.
George Miller, a partner in Shustak Reynolds & Partners representing the advisors, tells the publication about $500,000 is in dispute. But Good Life says the sisters’ claims are “baseless” and “legally deficient” and intends to contest them “vigorously,” Bryan Ward, a lawyer with Holcomb + Ward representing Good Life, tells ThinkAdvisor.
Westburg and Lipman had joined Waddell & Reed in 1999. In 2003, when their father Sam Lipman retired, they took over his advisory business, according to the publication. The sisters then joined Good Life Advisors as hybrid advisors in 2014, ThinkAdvisor writes. At the time, the sisters managed around $30 million for about 230 clients, according to the publication.
They began receiving some profit-sharing distribution as soon as they joined the firm, but two years later the sisters signed an operating agreement that was meant to formalize the distributions, Miller tells ThinkAdvisor. That agreement included a non-compete clause entitling Good Life to damages if Westburg and Lipman left the firm without giving 120 days notice, according to the publication.
Miller tells ThinkAdvisor Good Life told the sisters they needed to sign the operating agreement if they wanted to continue getting the profit-sharing distribution, which they did. The advisors then left the firm in early February this year — but about 40 days early, as per the operating agreement, Ward tells the publication.
“There were rules for the shareholders to follow, and Ms. Westburg and Ms. Lipman didn’t,” he tells ThinkAdvisor.
But Miller tells the publication that when the advisors had told Good Life of their intention to leave, the company said that whatever RIA they moved to would have to pay over $75,000 to acquire their practice. The sisters registered with Commonwealth Financial as independent advisors in La Mesa, Calif., at the start of 2018, according to ThinkAdvisor.
Good Life recently filed a motion to dismiss the advisors’ claims, citing lack of jurisdiction and failure to state a claim, the publication writes. Miller, however, filed an opposition motion last week, according to ThinkAdvisor. The case has yet to enter the discovery phase, the publication writes.